1991 (5) TMI 175 - AT - Central Excise

Appeal Allowed: Duty Demand for Molasses from 1977-78 Overruled

The Tribunal allowed the appeal against duty demand for molasses produced in 1977-78 and stored in a katcha pit. The appellants, sugar manufacturers, ... Unfit for consumption or for marketing - duty not demandable under second proviso to Rule 49 - contractual liability under special bond - temporal nexus between production/storage and bond execution - State Excise control affecting clearance of excisable goodsContractual liability under special bond - temporal nexus between production/storage and bond execution - Whether a contractual liability under a special bond executed after production and storage can be enforced to demand duty in respect of molasses produced and stored before execution of the bond - HELD THAT: - The Tribunal found that the molasses in question were produced and stored in 1977-78, i.e., before the execution of the special B-2 bond undertaking not to claim remission of duty on molasses stored in katcha pits. In those circumstances it is doubtful that the contractual liability arising from a bond executed later could be enforced against the manufacturer in respect of goods already produced and stored when no such contract existed. The Bench noted its earlier decisions holding that while a contractual liability under a special bond may give rise to remedies in a court of law, it cannot be used to deny the statutory remedies available under Central Excise law where the temporal nexus is absent and the bond post-dates production and storage. [Paras 6]The contractual liability under the special bond executed after production/storage could not be enforced to sustain the duty demand in this case.Unfit for consumption or for marketing - duty not demandable under second proviso to Rule 49 - State Excise control affecting clearance of excisable goods - Whether duty can be demanded where the manufacturer claims the excisable goods are unfit for marketing or consumption and seeks permission to destroy them - HELD THAT: - The Tribunal applied the second proviso to Rule 49, which permits the proper officer not to demand duty on goods claimed by the manufacturer to be unfit for consumption or marketing, subject to conditions the Collector may impose in writing. The facts established that the molasses had deteriorated and were unfit for marketing, the manufacturer had sought State Excise permission and had applied to the Central Excise superintendent for permission to destroy. There was no allegation that the goods were fit for marketing. Although the proviso uses the word 'may' regarding imposition of conditions, where the goods are admittedly unfit and permission to destroy has been sought, the proper officer cannot demand duty; he may, however, impose conditions to ensure the goods do not enter consumption. The Tribunal cited its consistent earlier rulings to the same effect and held that duty should not have been demanded. [Paras 6]Duty could not be demanded on the molasses which were unfit for marketing and for which permission to destroy had been sought; the Collector's demand was set aside.Final Conclusion: The appeal is allowed: the duty demand in respect of molasses produced and stored in 1977-78 is set aside because the special bond executed later could not sustain the demand and, in any event, the molasses were unfit for marketing so that under the second proviso to Rule 49 the proper officer should not have demanded duty. Issues:Appeal against duty demand for molasses produced in 1977-78 stored in katcha pit. Interpretation of contractual liability and duty under T.I. 68. Application of Rule 49 and second proviso. Permission to destroy unfit goods.Analysis:The appeal was filed against a duty demand for molasses produced in 1977-78 and stored in katcha pit, based on an order by the Collector of Central Excise & Customs, Aurangabad. The appellants, sugar manufacturers, argued that there was no restriction on storing molasses in katcha pits during that period under T.I. 68. They highlighted that the molasses had deteriorated and sought permission to destroy them, as they were unfit for marketing. The State Excise authorities were involved in the process, and the appellants had addressed the issue with them before the duty demand was issued.During the proceedings, the appellants' advocate referred to relevant correspondence and argued that the contractual liability for duty arose only after restrictions were imposed in 1980, which was after the molasses were stored. The advocate cited previous decisions in favor of the appellants to support their case. On the other hand, the JDR did not dispute the facts but emphasized that the production in this case was from 1977-78, questioning the need to store a large quantity for an extended period.The Tribunal considered the contractual liability issue and the application of Rule 49 and its second proviso. It was noted that the molasses were stored before the special bond for duty remission was executed, raising doubts about enforcing contractual liability. The Tribunal referred to previous cases where it was held that duty recovery based on a special bond required a valid contract, which was absent in this case. Additionally, the second proviso to Rule 49 stated that duty need not be demanded for goods unfit for consumption or marketing, subject to conditions imposed by the Collector.The Tribunal concluded that since the molasses were unfit for marketing and the appellants sought permission to destroy them, the duty demand was not justified. The proper officer could not demand duty in such circumstances, as per the provisions of Rule 49. The appeal was allowed, and the order of the Collector demanding duty was set aside.